Value at Risk (VaR)

Value at Risk estimates the maximum expected loss on a position or portfolio, over a given time period, at a given confidence level — for example, a 1-day 95% VaR of $500 means there's a 95% chance losses won't exceed $500 over the next day. It's a standard risk metric used by institutions and increasingly by sophisticated retail platforms to quantify downside exposure in a single number. VaR has a well-known blind spot: it says nothing about how bad the loss could be in the remaining 5% of cases (tail risk), which is why it's often paired with stress testing for extreme scenarios.